Growthpoint Properties Limited (GRT) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Q&A call with the Growthpoint management team following the release of the investor update for the 9 months ended 31st March 2023. Representing Growthpoint, we have Group CEO, Norbert Sasse; we have SA CEO, Estienne Klerk; Head of Investor Relations, Lauren Turner; Group Treasurer and Financial Director, Gerald Volkel; Head of corporate social responsibility and transformation George [indiscernible]; Head of Corporate Finance [indiscernible]. [Operator Instructions].

[Operator Instructions] Can I hand back to you for the first question.

Yes. Perfect. So let's kick off from my side. I'd like to start discussing the successful refinancing of the Eurobond pleasantly surprised by the new rate given the current environment so well done there to the team. Just can you unpack maybe the -- and how you decided on the repayment given the initial 3 options communicated to the market? And then following on from that, maybe discuss the rate quarter on terming out the bond as well as the hedge maturity profile.

All right. Good afternoon, everybody. It's Norbert Sasse. I'll give this a go. And if I get stuck and going to refer to who is on the call. But -- I can't recall specifically the 3 options that you referred to in your question as to what we communicated before. But it's fair to say -- we've been monitoring this thing for the best part of, I'd say, close to 2 years given that the liability became current 12 months before. So it was payable in May '23 -- May '22, it already became current. We were really concerned about it. So we've been heavily engaged with our advisers and investment banks on refinancing this bond in the bond market, in the Eurobond market for best part of 2 years. It's fair to say that at the outset, we were being given quotes, which sounded very acceptable to us and we are very supportive of using the bond market to refinance that. But as we got closer and closer to the maturity date of this bond, clearly, global debt markets and bond markets started playing up. And we saw for a period of time, liquidity dry up completely in the Eurobond markets, whilst I believe there is liquidity there today. Certainly in the last 6 to 9 months, the pricing that we were given and that was indicated to us which was sort of north of 7% and some even 8% in dollars was clearly not going to be acceptable to us. So we started implementing alternative strategies. Initially, just to put facilities in place short-term facilities in place, which would allow us to draw down on those facilities to repay the bond in May '23. Now -- and you go back to see at June '22 -- sorry, December '22, June '22, we had in excess of ZAR 10 billion worth of liquidity put in place specifically to deal with this refinance, but those were relatively short-term facilities, principally sort of 2-year facilities. We have -- where we are today, we have essentially turned out the bulk of those short-term facilities. I think there's possibly still 1 which we need to do, either just before 30 June or possibly just after 30 June. But we have refinanced with 4 local and 1 international bank where they have lent us denominations of between EUR 50 million and EUR 100-odd million each, aggregating the EUR 326 million that needed to be refinanced. And so we no longer have the situation where we have a dollar bonds swapped into euros. We've now just got bilateral euro loans with 5 financiers. In turning out the facilities, so we've achieved average duration or term of loan of about I think it's 4.7, 4.8-odd years is the number we quote. Just trying to find -- 4.86 is the actual duration of the underlying loans, and that can still change a little bit, I guess, depending on the final turning out of the 1 facility. Furthermore, I think we have negotiated obviously, margins and we currently obviously have a particular base rate that we're dealing with in Euros. And we have entered into swaps to swap some of these sort of floating rate loans into fixed. And we have achieved an all-in rate of 4.18%. Now that compares to the 3.6-odd percent that we were paying or in on the previous, let's call it, Eurobonds, the dollar bond that we had stocked into euros. So call it 50 in number, 50, 60-odd basis points higher. But important to note though that the average duration of the hedges slightly shorter than the average duration of the underlying loan facility. So the average -- weighted average term on the hedges is 3.79 years. And -- so you might say that the 4.18% looks low, given where current rates are and the reason for that is when we originally issued the 5-year bond in 2018. We entered into 10-year interest rate hedges on up to EUR 186 million equivalent. And there's still about 4 to 4.5 years left on some of those hedges. And those we're putting at a base rate, I think when the base rate was in the low 1s, low 1%. I mean immediately after entering into those rates. Obviously, rates continue to go much, much lower. So we didn't look too clever -- but given what rates have done since then, obviously, at the moment, we would be getting the benefit of that. So I think we're certainly very pleased with the overall outcome. We've repaid all of those bonds. We've got new debt for a pretty decent weighted average term. And equally, we've got fixed rate equivalent hedges in place now for 3.8 years. Now clearly, as some of these hedges start rolling off, that's a weighted average number. So some of it will roll off next year and some of it will roll off in the year thereafter. If interest rates remain where they are at the moment, where 5-year base rates Euribor is probably 350 there or thereabouts, that weighted average rate could increase depending what we ultimately do really believe it floating or we put new hedges on. But that's the status quo where we are today. I don't know if that answers your question there, Edwin.

No Leon it does, well done on 4.18%. It's a very good rate in the current environment.

[Operator Instructions] Question from the line comes from of Capital.

Any attractive distressed opportunities overseas? Sicono Enterprise is the controlling shareholder of Globalworth looking to sell part of their stake due to -- there's shareholders being under pressure, especially around town and does a growth point have capacity to do deals.

All right. Norbert, again, I'll go for that. I think, yes, I mean, if 1 just looks at the broad market coldly, there appears to be many really good, cheap opportunistic buying opportunities. If you've got access to new and, let's say, fresh and relatively cheap capital, I think in terms of our broad statement around optimizing the international investments and continuing to look for offshore expansion. We have to be mindful of the fact that we have, I guess, limited access to capital ourselves, given the LTVs at the moment. And given the -- where the share price is trading relative to NAV, so I guess whatever capital we've got available to pursue this optimization one has to appreciate that it's relatively limited, and it's going to be incremental. We don't have access to -- I don't know what a runtime stake is worth. At NAV, runtime stake is worth probably somewhere between EUR 550 million and EUR 600 million. The same for CPI. Their stake is probably worth the same in NAV. I think the short answer to that is we don't have access to that kind of capital. But what I will say is that we continue to look to engage with those shareholders with a view to try and optimize the position where, at the moment, the company, I guess, we'd be relatively stuck. And I think each party would be more keen to maybe have some direct control over certain elements of the business or certain portfolios within the business. And various discussions in that regard remain ongoing. But Capital is expensive. Capital is relatively scarce, and we're going to have to very prudently work with our available capital in terms of where we allocate that. But yes, we certainly would be looking to find a better solution to what we currently have, where we're just sitting as a minority shareholder.

The next question comes from Mweishö Nene of SBG Securities.

Can you hear me?

We can.

Just 2 questions from me. We've got this 60% interest rate hedge, right, on the facilities and the Australian rate tax has been quite extreme. Is there a big risk on some downside on the cost dividend? And do you have that maybe going backwards? And then to the second question, you have given us some kind of soft guidance for FY '24. So you said that it should be lower than '23. But I'm just wondering, do you expect that to be negative.

So if we can try and answer that. I think the first one, I'm going to -- I'm probably going to back because I don't want to be making any statement. I mean GOZ itself has not come out with any forward-looking statement yet. I think traditionally, GOZ has always put their forward-looking statement out at the time of putting out their final results. Obviously, just yesterday or 2 days ago, GOZ put out a market update on valuations and also reconfirmed its dividend for this year and the FFO for this year. But it did not make a forward-looking statement. So I don't want to be making that statement here. You're going to have to wait for GOZ to make that statement. But I guess I'll just make a broad statement to say that don't matter which company you're running, where in the world, if you've got circa 40% LTV and you've got floating anywhere between 15% and 30% floating debt you're going to pick up significantly high interest costs, and that's going to filter through to the bottom line whether that is in Australia, Eastern Europe, South Africa, you don't know where you are. It's a dramatical sort of call. So I'll leave the GOZ answer at that. I'm sorry for being a bit vague. On the South African comment, I guess, the comment that we put into the press release speaks to the dynamic that I've just elaborated on. There is obviously a chunk of variable debt which is attracting significantly higher interest rates than what we would have paid on that during this year. This year has also been characterized by the fact that interest rates kept stepping up periodically throughout the year. I read some press yesterday that suggests that interest rates in South Africa could have peaked. I don't know what the U.K. announcement earlier today means for that. But yesterday, the sort of commentary was that maybe there's another 25 bp varies in South Africa, but for the rest, this consensus view is pretty much that interest rates have peaked. Nobody is really suggesting they're going to be rushing down next year. There's broadly a view held certainly, I hold it as well that interest rates are not going to be sort of higher for longer, having been lower for longer for many years. And so the consequence of that is that the higher interest rate on the floating component of our debt will effectively be in for a full 12 months, whereas this year, it was obviously stepped pretty much every month as we went through the financial year. So interest costs are going to definitely be higher. And as a result, we are just messaging to the market that we think next year's distributable income per share will be lower than what we produced this year.

Okay. That's negative growth.

Correct. Correct.

[Operator Instructions] The next question comes from Jonathan du Toit of Oyster Catcher Investments.

I guess 2 questions from my side. Just on the retail side, you're still getting -- I mean, I noticed there's been an improvement in the rent reversion, but it is still quite negative. And I guess some of your peers may not entirely comparable portfolios. But the reversions are certainly getting quite a lot closer to flat. I don't know if you can comment a bit about that? I mean, why is it still negative? And then the second question is, without the 2024 dip guidance, without high interest rates, would it have been core flat? Is it purely interest rates? Or is there something else in the portfolio that is also causing 2024 dips to be expected to be slightly lower.

What I'm suggesting on 2 shares maybe I'll answer that second part of your question. And then I don't know if I can put you on a spot, perhaps on the retail reversions and your comments on that. But just this relates to the second part of your question, I think the dynamic, as I explained it in relation to South African interest rates would apply, I guess, equally to all the other investments that we have to a greater or a lesser extent depending on levels of hedging, et cetera, et cetera. So I would suggest that there are a number of contributors in terms of our outlook for next year. The biggest contributor to the, let's call it, negative reversion on dips by far is interest. But there are a few other bits and pieces that equally are probably likely to have a negative outcome or a negative impact. So it's not clearly interest rates. There are a few other let me say, more operational type issues that would have an impact. And I guess from -- as I said, on the portfolio investment side we are equally expecting that there are a few pieces to the puzzle that would be negative. So it's not 100% interest only. There are a few other areas that we have taken a view on that would be negative next year. If I could refer to you on the retail mine.

Sure, sure. So I think the message is that we are seeing improved sort of rental versions as we speak. Clearly, mathematically, even if you're doing no reversions at the moment, given what's happened in the first 9 months of the year or the first half, specifically, mathematically, the average still will reflect negative as it is reflected here. So I think the message is that we are seeing a marked improvement in those reversions are what I would deem to be in the single digit now. These are very much a property-by-property thing, and we have had 1 or 2 large transactions in the year -- in the first half of the year that definitely had a material impact on that number. But what I've been led to believe for this the numbers we've seen for the second half is that this is continually improving. And clearly, the better the asset or the stronger the trade in the asset, the better the answer is. We have recently been on a road show around the country to -- and see the very large retailers, and we have indicated to them that we are -- the trade and the trading density within the shopping centers now supports rental levels and potentially even growth in rentals. And well also it wasn't a message that they equally wanted to receive. They couldn't deny the fact that their cost of occupation had plummeted in the past year given the dynamic of reducing rentals and increasing trading in those shopping centers. The difficulty that we do have, and unfortunately, nothing is a perfect world when you're dealing in the environment that we are dealing in. And the difficulty we have in to work through is the complaints around their increased operating costs given lower shedding and inflation in their costs. And that is quite a difficult debate because reality is the landlord shouldn't weigh the full responsibility for their operating costs. So I think it is an ongoing debate, but I think the messaging is and certainly the trend that we have seen is that there should be a significant improvement. But just mathematically, obviously, given the scale of the quantum of transactions that are completed. I mean you're dealing with big volumes of leases that have been completed. If you did quite a lot in the first half, mathematically, it can't show the same picture you gearing for maybe a quarter from some of our competitors.

The next question comes from Mario Longana of Coronation.

Two questions from my side. The first is in regard to the NAS FSE cap at ZAR 45,000. Now you've noted is there any sort of impact on Victoria portfolio excluding Brooklyn and working out to some initiatives -- I'm sorry, also the guarantee that comes into for FY '23. But I'm trying to understand what the difference is between that cap and the market rental for that portfolio just to understand the earnings impact. And then question 2 is on Lango. You made a comment that due to version regulations specifically related to the calculation of retained earnings, it's preventing Lango from declaring distribution. I'm just trying to understand that a little bit better, if you could add a bit more color there.

Thanks, Mara. Yes, could you take the first or do you want me to.

Sure, sure. No, I'm happy to cover that. So no -- So I mean, it's pretty clear and the messaging was that the 45 did come a little bit left field, to be honest. Nobody in the market expected this cap to come through. And yes, it has had a negative impact on certain of our properties. The properties in Victoria, and I'm talking about certain of those properties have been negatively impacted and they are the properties that had a big exposure to the students that were in occupation. And clearly, that will erode value in the year going forward. There are strategies that are being implemented, which will improve that -- make an improvement to that erosion. But as you pointed out, we did have a rental guarantee until the financial year in this year. So that won't impact this year at all. In terms of the properties, let's say, in Johannesburg, many of those property actually we're very, very close to those rental levels anyway. And if you know that you are targeting a market at a certain rate, then you can develop properties accordingly. And you can structure the product to suit the rental that you can earn -- so some of the stuff that we are busy with at the moment developing, we've obviously had to redesign some of those to accommodate the right levels. And in the properties where we have a high level of students, we are looking to potentially densify some of those properties further. So that will obviously improve the situation. There is also active work being done through the universities as well as ultimately discussing the matter with Naspers at looking at grading properties, et cetera, which potentially in the future, will alleviate this sort of 1 rate fits all. And to give you an idea, I think the bigger problem is actually in universities like Victoria, like Capetown University, where the rates will really have a material impact on the ability of students to actually obtain accommodation in those markets. So we do have a broad spread. I think we've got about just under or just around 60-odd percent of the portfolio is exposed to [indiscernible]. The balance is private Naspers students, and those obviously have a different product quite often and pay totally different rates.

I can just add to that a little bit. And Mara, your specific question is the strategies. And I think elaborated there on is mainly linked to reconfiguration of the existing space. So can you densify by putting 2 beds in a room or 2 beds or it's more operational efficiencies and reconfiguration at the asset level to try and improve the overall revenue generation of that asset. I would -- I'm going to put a number out there, it might be shocked by some of my colleagues later on. But -- in terms of net fast students and the 45,000 versus what they were paying and bearing in mind, not every Victoria property is 100% net but each 1 has got various -- varying percentages of nets. But what was being paid by those [indiscernible] students versus the 45%, I think the 45% represents a drop of I'm going to put a number there, about 25-odd percent. So -- but again, it's not -- as I said, each asset has got differing percentages of net as occupancy relative to total occupancy -- but the reconfiguration is more operational. So moving on then, I think, Mara, to the second question that you had, which talks to Lango. So in essence, the Mauritius let's say, whatever these are regulations or whatever going to call them determine that you can't pay a dividend unless you have retained earnings -- and the 2 elements that are impacting, I guess, the retained earnings of Lango and the definition there clearly captures asset revaluations up or down. And whilst asset values have been relatively stable, there is that 1 element of what's impacting, let's call it, distributable earnings at the Mauritian level. The second 1 is very much a Ghana specific issue where the tax laws in Ghana actually require you to amortize your building at a rate of 10% per annum. And on that amortization number, you have to provide a deferred tax implication tax of 25%, and you are then raising effectively a deeper tax liability, which again is impacting the the determination of distributor after either retained earnings. And on the basis that you don't have retained earnings, you cannot pay a dividend. So this deferred tax thing is not a cash flow item. It's an accounting entry, but those would be the 2 major things that are impacting that and are having the effect that we can't -- we are unable to, at this time, pay a dividend out of part of Lango out of Mauritius. I hope that answers the question.

Ladies and gentlemen, at this stage, I'm handing back over to Ridwaan Loonat for further questions before coming back to the telephone lines.

Maybe just a question on yesterday's circular. If you can share holder approval for the ZAR 250 million in broad-based BEE ownership scheme. Can you guys just maybe talk to that the price with regards to the amount? I see there no new shares that are being issued but rather coming out of treasury shares. Can you just give us more information on that, please?

Right. I'm going to ask Estienne and Sean and Banner in the to deal with that if that's a is.

No problem, Norbert. So I think maybe I'll talk to the pricing and then Sean can just talk around the objective of the trust, et cetera, and give you guys a bit of insight into that. So obviously, we assess our position ongoing as to our CSI requirements, and we budget for that annually. So we've definitely decided that if we can structure something that over the long term, will fund these initiatives more efficiently that would be beneficial to the beneficiaries as well as to the company. Over time, our ownership points have reduced as some of our previous empowerment transactions, the beneficiaries have sold down. And obviously, as we've issued more shares, that has also had an impact on those empowerment points. So this structure sort of meets nearly 2 objectives. In terms of the actual shares that we've used, as you pointed out, they are treasury shares. So once we knew what we wanted to do, the idea was to rather buy in shares rather than issuing new shares because existing shareholders will obviously dilute if we had to issue new shares. So we acquired these shares on the market, mostly dividend actually. And the net price that the trust is going to pay the ZAR 12.50 is then the effective clean price. And in fact, on the announcement date that was pretty much the market pricing of the share on the day. So the trust will then be funded with a loan. And and that is how the trust will afford. So maybe if Sean, you can just cover the sort of purpose of the trust and objective.

And I think -- in terms of the scheme, as you would have seen, we're looking at a broad-based scheme and very much to be able to benefit beneficiaries that we have supported through initiatives like property point and it would be a fit scheme where the beneficiaries are small businesses as well as educational beneficiaries through our [indiscernible] program, and I think there was a couple of objectives that we had. One was to ensure that we are able to focus on ensuring that there's an impact in society. Secondly, that it becomes a long-term scheme to be able to really focus on uplifting society and not necessarily more narrow-based schemes like we've done in the past. And it's also programs that Growthpoint has been supporting in the past, and they have been able to provide good impact both from small business support and integrating these small businesses back into the supply chains of the industry as well as some of the educational programs through our Growthpoint initiatives in the Western Cape and the Eastern Cape. I hope that answers your question.

The next question is [indiscernible] of Baker.

Just quick 1 on [indiscernible] Can you give us a sense of the impact of that are that compared with your provisions to that debt and changes that related to that as well, if you can give a bit of color around the level of provisions for bad debt and other compared with before over [indiscernible] also where you expect there still to be a bit of contribution from that source to distributable earnings going forward. That's the first question. Second question, if you could just give us the sense of the Eurobond disposal fairly meaningful disposal program that you're working through at the moment. And then I see your solar power capacity is doubling this year. If you can just remind us of the cost of that. And the -- the earnings impact overall. I think the yield on that and where we can expect that yield to reflect in future years.

I'll give it a bit -- I don't know, you want to go?

Yes. Look, I don't mind going in general is in the room, so you can't kick me under the table, but he can shut me up if I get us completely wrong. First, we've seen obviously a steady decline in arrears over the last couple of years since COVID. I mean the release back then with over $500 million, and it's come all the way down. I'm thinking pre covid, I think our areas were about $100 million. The last time we reported pre-COVID there or thereabout. So I would think that we're reaching levels given the environment that we're in, that unlikely when we're coming down materially from here, maybe it moves in $10 million or $15 million or $20 million kind of movement, but I don't think it's not going to from the current levels, that kind of dynamic. If I recall correctly between the provisions at the property level and the provisions at head office level, were circa 75% provided. Gerald, you can maybe...

Yes. That's correct. That's correct.

Okay. And I don't think there's any reason for us to move from that materially. Clearly, every debt is analyzed and as said at the year-end an audited I wouldn't be looking for a major contribution to bottom line distributable earnings from filling around with the provision. The numbers are going to be relatively modest. So I'll leave that on the arrears.

Maybe I'll go back to you guys on the yield, the disposal yields and the solar.

Sure. Okay. So it's quite a complicated answer to give you, And the reason is that obviously, the different sectors have quite different ranges of pricing. And it also depends on the level of occupation are within the asset that is being sold. A lot of the disposals have been to own a tenants, sort of untenanted scenarios and investors. And in certain cases, some of those assets, we're either partially vacant or fully vacant. And as such, to give you -- you can kind of work on a sales yield potentially if it was full. So I mean in a broad range on a kind of fully led basis, we've been selling assets between 8 and and as high as, I would say, on the extreme 13.5%, 14-odd percent. So that would be the extreme and very few of those. I think what's probably more relevant is the -- how we've performed relative to book. And you can see there that effectively, we've really managed to sell very, very close to our book values. And in some cases, we've made sort of quite decent profits on book. But in certain cases, we've had to take a bit of a loss on book. So net-net, it sort of square. The income impact, I think what we'll do is we'll try and give you a little bit more color on that in our year-end results, if that's all right, because I mean, it is marginally dilutive based on a sort of fully let basis. But as I've pointed out, some of these -- not all these properties were fully let. So if you sell an empty being, it's actually quite accretive even if you're selling it at a 15% yield. So that's sort of, I think, maybe just answer on that. Just can't remember, what was the last question? Solar. So the solar projects -- so to be honest, the return on sale at the moment is a little bit better than on real estate. And given the sort of environment that we're operating in, there's multiple sort of rationale why we should be doing it. I mean clearly, it's in line with our strategy to get to carbon neutral. The second thing is it does help with a level of power security at these assets. And in certain cases, even brings down the cost. So the returns are very dependent on what the retail rates are in the -- at the specific asset. So at municipal facility properties within municipal areas, the returns are higher than at properties where they are on Eskom areas. So they do range from 20% upwards roughly, give or take. So that's just -- that's sort of a broad range that we're looking at as just a simple sort of view. The total return probably because these things don't have, they've got a sort of a limited life span, you're probably looking at roughly between 22% to 50% as a broad range for total return on some of those. And the quantum we spent, I'm just trying to remember, I think the whole lot to take has cost us about ZAR 0.5 billion. So I think that's more or less and I think the incremental stuff is included in that. I'll let to go check that number. Sorry, I don't have that -- but we'll give you a lot of insight into that as well.

Estienne, the number is correct. That's the number we disclosed the market to [indiscernible] more.

That doesn't have to all added 20% return in terms of $100 million of distributable earnings. And where will we start seeing those earnings come through. Will it reflect and reduced costs or reduced and recovery rates. So as our improved recovery rates of cost increased.

So basically, just to understand the sort of financials of how that would. So if you -- and we do it with 2 scenarios, maybe 3 scenarios. So the original schemes that we put in, we're not connected in a way that should there be load shedding that they continue to operate. They actually switch off. And that was a specific safety measure that was a requirement. There is obviously, technology has moved on. We can now -- there is technology where we can connect it via the generating system and those then can continue to operate. So all the new installations clearly have that in place. And there you are getting a significantly increased return as a result of that. And what you will see is that effectively, your cost of electricity that you're paying will reduce in the income statement over time and your recovery should remain effectively the same or even go up in certain cases. So that -- because if you look at the financials, we set off the recovery of electricity against the cost. So we make a retail margin. So we're buying wholesale effectively from Eskom. And just to contextualize, I think our total capacity is still 94% from Eskom at the moment -- sorry and municipalities, good point from municipalities and Eskom from the group, let's call it, and only 6-odd percent is from renewables and other sources. So the reality is that the numbers are still reasonably small in the scheme of things threshold.

Estienne, just to be absolutely clear in my mind, the interest costs associated with the capital spend will be in the interest line and the improved return, if you want, will be an NBI of the retail, mainly retail assets, depending on which asset this particular installation actually impacts. Is that correct?

Correct. But it will reflect in the -- I think when we consolidate, we do provide in the year-end results, we provide detailed information on the income or the recoveries and the expense as it relates to electricity. So you should see a bit of a margin opening up there, which is then your return on equity.

But it's in the NPI line that's going to come through in the NPA and effectively.

Correct. Correct.

The next question comes from [indiscernible] of Cosman Capital.

Will Growth Point need to devalue their asset properties given that the is a 10-year government bond yields around 12% when looking at discount rates? Or how do you think about this?

Let me go at that. So look, I think the -- clearly, the ultimate valuation decisions or calculations and determination sits with the valuers. Whilst we obviously don't just accept everything they put on the table that face value and we're able to have a discussion with them, where we believe there's fundamental flaw, the fundamental errors. Generally speaking, this is -- it's -- the valuations up to the independent third-party values. The way they have looked at the movement in the long run rate over time. I mean, I generally track the what I call -- I think what is called the 10-year constant maturity yield and that has been pretty volatile, it moved up over 12%, but it's actually right back down to about 10 -- sorry, 11.50-odd today, if I'm not mistaken. But what the values tend to do is not pick a number at a debt. So they generally look at the long-term sort of trend and it's all in more of an average movement in the long-term 10-year yield. So I don't think every value doesn't usually seem consistent excuse me, consistency, but somewhere between a 3- and a 5-year average, if you want, on the risk-free rate. So I think what is -- and has been evident over the last couple of years is we have -- I think, since pre-COVID Growthpoint's written down our assets by in excess of 20-odd percent. We recently had a presentation by MSCI, which confirmed to us, I guess, that relative to the market or rather the benchmark, we have been writing our assets down or our assets have been written down more aggressively than the market. And I believe that the consideration of that is also sort of taken into account in the final analysis on what is the overall historic write-down being over the last sort of 4 years or since pre-COVID. On a more sectoral level, I think the recovery in retail and the recovery in industrial I think, suggests and given what was historically written off, the view -- the general view held is that the -- we're not likely to see any meaningful movement in those asset values where as office clearly being the weaker of the 3 sectors, notwithstanding the fact that we've written those down, I think, for the last 5 years, that potentially, there's a bit more to come. So I hope that answers the question.

The next question comes from [indiscernible] of Optimum Investment Group.

Just a quick question. You mentioned in your Industrial segment, some tenants doing application business rescue in May. What impact can that maybe have on vacancies? How large are those tenants currently renting? If you can provide some more color on that?

So that is a -- yes. Yes. So those clients are currently in business rescue. And those 2 properties, I think that -- they won't have that material impact on the vacancy number. So it will be at worst maybe 1% higher. At worst. I think there are other transactions, okay, post these results, which will probably mitigate that impact. So some letting that we have done.

At this point, I'm handing back over Ridwaan Loonat for further questions.

Maybe 1 question from me regarding the VNA. It's performed very well for the 9 months. Can we expect 0 range relief to go going forward for the hospitality tenants?

I'll answer that. I think as you rightly point out, it has performed very strongly. And I think it's fair to say that there's no further rental release being provided, I think, to any tenant within the waterfront. There is still a fair bit of recovery. So what rental relief was significant rental relief was given to the hotel operators and some of the restaurant operators and the operators of some of those -- in some of the markets during COVID. A number of the hotel operators were given an extended period of time to repay. So unlike, I think, what happened in growth when we actually gave absolute rental discounts, the waterfront tended not to give absolute discounts, but to rather give deferrals. And so there will be a continuous recovery of some of those deferrals, but certainly no further rental relief. Deferrals would be in the arrears number of the waterfront steel as well.

And then final question from me. Regarding your hedge profile with higher rates now, how are you guys looking at your interest rate risk? If this hedge is coming up for renewal, do you look to lock in higher rates now or willing to accept, let's say, claim variable this can take on more interest rate risk in the current environment. Just how you guys are thinking about it?

Yes. I'll give that a go as well. I mean, clearly, a lot of debate at the various committees, in particular, our Risk Committee on this particular topic. I don't think we are particularly good at forecasting interest rates and where they go and where they don't go -- we both historically clearly had a very -- I think, a reasonably conservative policy around interest rate hedging at minimum 75% needs to be hedged for circa 3 years in duration. We've had various debates on where do we relax that on whether we maybe tend a little bit lower. And clearly, I think at the March print, we 80%; at June, I think will be lower given some impact of the overall, let's say, bond refinance, but also some other existing hedges rolling off. We are targeting to be above 75% at 30 June. And I guess for the topic over the years, just anecdotal. I think, again, looking at some numbers if we -- had we not had a policy of hedging interest rates at the level that we're at. If we, for example, had a policy of just having floating interest rates for 100% of our debt. The additional interest on our debt book would -- on a 12-month basis would amount to circa ZAR 1.2 billion worth of additional interest. So thank goodness, I guess, for the policy. And the policy, I guess, was designed to -- I guess, arrived with interest rate trends as they play out. So as interest rates rise, our average interest rate cost sort of goes up but not in a volatile basis. So you'll see from the -- if you go back to our disclosures over the last 2, 3 years, that will be a little bit shorter. You'll see that our average interest rate, excluding the international hedges or international debt has gone up from 8.1% to 8.5% to -- I think we printed a number now just around about the 9% number, just over 9%. Equally in interest rates come down and go from 9% to 6%. That sort of moved down over the years. They moved down from incrementally from 9% down to 7% over a period of time when interest rate kept tracking down we don't get the full benefit. But equally, when they're going up, we don't suffer 100% of the pain. So we constantly talk about and debate that hedging policy was debated again just last week at various committee meetings in the last 2 weeks. But for now, we're going to stick with that policy of hedging at least the 75%. Clearly, where we are in the cycle, we don't want to push it from 75 to 90 or 95, we're probably going to be at that lower end of that range. Given the general fuel and the general comment, as I mentioned earlier that interest rates topped out.

Our final question comes from [indiscernible] of Nedbank Private Wealth.

Just a clarifying question on the yield on solar. Do those issue batches -- and in terms of the new solar PV that you're paying up, do they also need backup power -- on the backup storage. How does that work?

Ms. Jim. We've only got literally 1 project where we've put in battery capacity of 4.5 megawatt or more. And to give you an idea, the reason why we did that was more to manage load than it was really to ensure backup power. So -- most of these large properties or just for clarity, electricity is charged in sort of 2 ways. One is a demand charge, which is like a line rental, if you'd like. And then obviously, the other is the utilization aspect. And utilization is in most of these large properties is on a time of use basis. So there will be times where in the middle of the night, electricity is cheaper than in peak times at 8:00 in the morning and 8:00 and 7:00 at night or whatever the case may be. So what we had worked out a given the rate -- the specific rates of that municipality. If we put in a battery, where we can move the loads to cheaper periods then we could get a very good return on that. So the solar today is at most of our facilities, there isn't battery with that. But increasingly, we're looking at a combination of different solutions to nearly optimize the solution. So increasingly, we are becoming the municipality where that's not really ideally what we want to be. So on very big facilities, you still need generators. To the extent we can, we are putting solar on and as fast as we can to try and bring down that utilization of generation because it's obviously very expensive. But battery is a whole different legal expenses. And we are assessing the optimum sort of solution for every single property given the cost that drives that in specific municipality and the specific profile it has and also the specific electricity rate that it is on. So it's quite -- maybe a complex answer to what was really a simple question.

Yes, just in the interest of time, I'd just like to conclude the session and thank Growth Point for allowing it to host the pre-close call or update. With that, I'd like to thank everyone enjoy your evening.

Ladies and gentlemen, please note that this event has concluded. You may now disconnect your lines.